When it comes to deciding for or against the adoption of an “industrial policy”, I’m still not sure which part of the divide to plight my troth to.
On one hand, there’s the very persuasive argument in favour of all efforts to ensure that industries that have a proven utility in the development of other economies, take root here as well. How can one not want Nigeria to have a thriving manufacturing sector? Or in the face of the clear benefits to diverse economies of the information and communications revolution, why should government not support the acquisition of domestic capacity in this sector?
However, against this, consider the following counter-arguments. First is the problem with choosing the “right” industry. Customer tastes and buying behaviour have become more fickle, and the speed with which these changes are communicated across the world so mind-boggling that chances are that no sooner has the process for identifying an industry deserving of public support reached its conclusion, than public policy is invited to redress the germs of a rust-bucket in the same industry. Handled incorrectly, or in the absence of any luck (which in this instance is about the same), industrial policy ends up mis-allocating resources by barking up the wrong tree.
The design of appropriate intervention measures is no easier, either. Perhaps the clearest failure in Nigeria is the attempt to keep domestic food prices low. Useful, though this is for the urban dweller, it actually re-allocates welfare gains away from our rural communities (where the food is farmed) to urban areas (where most of it is consumed). To the extent that any subsidy involves a re-allocation of resources away from one sector of the economy in favour of another, success would require a holistic, all-in assessment of the net welfare gains of every sector of the economy, and the trade-offs that define the sundry interactions within that economic space. A hard call to make. No doubt.
There is a second dimension to the design of intervention measures in pursuit of an industrial policy. This is when the policy is designed to protect local industry from foreign competition. The first challenge here is definitional. Why should Unilever count as local industry against a Procter and Gamble, for instance? Okay, so the former has been here for as long as we all can remember. Still, it is hardly more local, on this account than the latter. Beyond definition, there is also a problem with method. Tariffs are the easiest way to protect “local industry”. Government puts these up, ensuring that imports enter the economy at far higher prices than their “domestic” equivalents. Essentially, what takes place under this rubric is a net transfer of welfare from the private to the public sector.
All of these were serious problems until I listened recently to a representative of “big pharm” in Nigeria. After that, they approached nightmarish proportions.
Because of our industrial policy in the pharmaceutical sector, government tariffs and taxes contribute close to 40% of drug prices in the country. Not just does this make the sick and the needy pay more for healthcare, but it apparently contributes a needless layer to our fight against corrupt practices, since the incentive is then for “unscrupulous drug makers” to suborn the bureaucracy “to get their products on the market”.
Now after decades of this “protection for local manufacturers”, the domestic pharmaceutical industry has remained “an infant industry”, while high import duties and burdensome domestic operating conditions have driven off foreign direct investment in the sector.
Three additional facts from the presentation are worth quoting extensively here:
- “According to WHO estimates made in 2001, 40-50% of the country’s pharmaceutical market is accounted for by fake medicines, on a par with Pakistan;
- “In 2004, the Ebonyi State Task Force on Counterfeit and Fake Drugs reported that approximately 48% of goods and drugs imported into the country were substandard or counterfeit; and
- “In 2009, NAFDAC impounded counterfeit drugs worth a total of NGN2bn (US$13mn). According to the NAFDAC, the spread of counterfeit medicines is 16%”.
WHAT IS TO BE DONE?